Ad-libbing is essentially "DM Fiat" -- any thing DM wants to have happen, happens. You can TRY and keep things within a "reasonable" scope, but since you get to define "reasonable" it's still 100% your ball game. With ad-libbing the DM always gets whatever the DM wants.
This is a perfectly fine way to play. If your players don't know they're playing "DM Fiat", however, there can be some annoyance if they find out you've just been making up their opponents' abilities and so on. If they don't have huge amounts of trust in you, they may suspect you of rigging encounters either to guarantee failure or success, and either way a portion of their fun can be gone, if to them part of the fun is facing the challenges you've designed and coming up with solutions to meet them. If they feel like you're altering the conditions of the challenge on the fly, they'll feel like their cleverness has less to do with their success or failure than your desires. Which for lots of people is less fun.
I suspect most games in most campaigns have a certain degree of ad-libbing -- it's impossible to avoid since you can never predict what your players are going to do. I find it VERY difficult to, for example, ad-lib high-level spellcasters -- there's HUNDREDS of spells they MIGHT have and deciding on the spot which one they cast and what effect it has is beyond me. Likewise, I don't know off-hand all the powers of a powerful demon or devil, and would very much want a stat block in front of me before throwing something like that at my players.
Sometimes you just make it up and just decide what happens. Take them down a bunch of hit points, make them feel like they're really working for it, but let them kill the BBEG in the end. Sure, that happens.
And there's a certain satisfaction in pulling a grand climax right out of your butt and taking your players for a thrilling ride using nothing but your imagination.
And for some players, that's HUGE fun, even if they (or especially if they) know it's been ad-libbed. Having fun making up stories together is a big part of D&D, and who cares HOW that happens as long as everyone is having fun?
Inna final analysis, it doesn't matter as long as you and your players are having fun. If you're secretly ad-libbing, though, I would caution you to get a hold of the reins and apply a little discipline, before your players surprise you with how seriously they take fairness.